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MVNOs Doing Better As Prices Fall, Satisfaction Rises

February 5, 2016 - Written By Daniel Fuller

Just a few short years ago, operating a Mobile Virtual Network Operator, or MVNO, was risky business. Prices of operation, such as network rental and obtaining new phones to sell, were extremely high and stakes were even higher. The MVNO market was, at one point, saturated. Names like Amp’d Mobile, Helio and Voce came and went, sometimes in the span of months. Some, such as Virgin Mobile, Tracfone and Net10, managed to stick around, but experienced fairly slow growth and low profits. It wasn’t exactly easy to beat the Big Four at their own game. MVNOs were locked in a mostly losing battle for price, value and customer satisfaction with the very carriers that enabled their existence. The ones that found the biggest numbers of subscribers flocking to them were mostly being switched to for the sake of price, which had to strike a careful balance between profitability and competitiveness with larger full-service carriers. MVNOs have mostly always had the added benefit of not locking consumers into two year contracts, but benefits people had come to expect from a wireless carrier, such as subsidized phones, were lost in translation.

Prices for network usage eventually fell a bit, allowing MVNOs some wiggle room with pricing, which attracted customers. Not too long ago, locking of phones to the carrier they originated from became a much less common and less strict process, with some carriers, such as Verizon, giving it up entirely. This brought a whole new crop of wireless customers fleeing from the Big Four, devices in their hands, to the cheaper and at times friendlier MVNOs. Fast forward to 2016; the MVNO space is booming. Towers are built and they fall, like PTel, but more and more companies are finding success in the revitalized market. According to Consumer Reports, the average MVNO has at least a ten percent higher customer satisfaction rate than the average big carrier. MVNO subscriptions account for about ten percent of total wireless subscriptions in the United States. This figure has roughly doubled since 2009.

Many MVNOs leverage the nature of their business to garner lower rates from competing carriers, or to gather more customers by offering coverage from all four of the major networks. One particular MVNO, Ultra Mobile, grew their revenue from $1 million in 2012 to $200 million in 2015, earning them the top spot on Inc.’s list of the fastest-growing companies in America. Tracfone CEO F.J. Pollak calls the company a “cash machine”. Touting $5.1 billion in total revenue in the first three quarters of 2015, the company seems to fit his description quite nicely. As network prices continue falling along with phone prices, MVNOs are set to become a cheaper and cheaper proposition, perhaps even driving continued growth at or near the current pace despite rising customer satisfaction ratings for the Big Four.